Dollar Index ahead of US Inflation data release
The DXY (US Dollar Index) 4-hour chart presents a mix of technical and fundamental insights:
Technical Analysis:
Price Pattern: The chart suggests a breakout from a descending wedge, a potential bullish reversal pattern. However, broader bearish signals loom, as noted by a potential head-and-shoulders neckline that, if breached, could trigger intensified selling.
Key Levels:
Support: Immediate support lies at 105.50, followed by critical levels at 105.00, 104.60, and 104.10.
Resistance: The next significant resistance is at 106.70. A sustained break above this level is needed to confirm bullish momentum.
Fundamental Factors:
Economic Data and Fed Meeting:
Traders are in a wait-and-see mode ahead of key US CPI and PPI reports this week. Core CPI is expected to hold steady at 3.3% YoY, potentially influencing the Fed's rate guidance.
The Federal Reserve meeting on December 19 is pivotal, with a 90% probability of a 25-bps rate cut to 4.25%-4.50% priced in. Market focus will also be on the dot plot guidance for 2025, which could shape expectations for future rate cuts.
Market Sentiment: The current range-bound movement around 106.35 reflects cautious sentiment, with traders balancing between potential bullish technical developments and looming bearish risks from economic data and Fed expectations.
Technical Analysis:
Price Pattern: The chart suggests a breakout from a descending wedge, a potential bullish reversal pattern. However, broader bearish signals loom, as noted by a potential head-and-shoulders neckline that, if breached, could trigger intensified selling.
Key Levels:
Support: Immediate support lies at 105.50, followed by critical levels at 105.00, 104.60, and 104.10.
Resistance: The next significant resistance is at 106.70. A sustained break above this level is needed to confirm bullish momentum.
Fundamental Factors:
Economic Data and Fed Meeting:
Traders are in a wait-and-see mode ahead of key US CPI and PPI reports this week. Core CPI is expected to hold steady at 3.3% YoY, potentially influencing the Fed's rate guidance.
The Federal Reserve meeting on December 19 is pivotal, with a 90% probability of a 25-bps rate cut to 4.25%-4.50% priced in. Market focus will also be on the dot plot guidance for 2025, which could shape expectations for future rate cuts.
Market Sentiment: The current range-bound movement around 106.35 reflects cautious sentiment, with traders balancing between potential bullish technical developments and looming bearish risks from economic data and Fed expectations.
Outlook:
Bullish Scenario: A break and close above 106.70, supported by favorable economic data, could fuel further upside toward 107.00.
Bearish Scenario: A decisive move below 105.50 or the neckline of the bearish pattern could intensify selling pressure, targeting 105.00 and beyond.
Traders should closely monitor upcoming CPI and PPI reports, along with Fed guidance, as they could significantly influence the DXY's direction in the short term.
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